EU Commission blocks Ryanair's bid for Aer Lingus

The European Commission on Wednesday blocked an attempt by Ryanair to acquire rival Irish carrier Aer Lingus, marking only the second merger prohibition by the EU executive in four years.

The Commission, confirming a Reuters report from May 30, decided the combination would destroy competition at Dublin Airport where Ryanair, Europe's biggest budget airline, and Aer Lingus are based.

The acquisition would have combined the two leading airlines operating from Ireland which currently compete vigorously against each other, the European Union's top competition watchdog said in a statement.

The Commission concluded that the merger would have harmed consumers by removing this competition and creating a monopoly or a dominant position on 35 routes operated by both parties.

But EU Competition Commissioner Neelie Kroes said the EU's top antitrust body could not force Ryanair to sell its 25 percent stake in Aer Lingus. Brussels lawyers and Commission watchers had expected such a divestiture.

Since Ryanair is not in a position to exercise de jure or de facto control of Aer Lingus ... the Commission is not in a position to require Ryanair to divest its minority share, she told reporters.

The stake gives Ryanair veto power over some decisions by the rival carrier.

Ryanair shares in Dublin were unchanged on the day at 5.00 euros but outperforming a 1.8 percent fall in the broader Irish market. Aer Lingus was down 0.76 percent at 2.6 euros.

Ryanair's offer, originally valued at 1.48 billion euros ($2 billion), becomes only the 20th prohibition among more than 3,000 cases reviewed by the European Union executive since 1990.

Kroes praised Ryanair for taking advantage of liberalisation in the airline industry to slash prices and give choice to consumers.

Ryanair has provided consumers with more competition and more choice, but, and that is crucial, Ryanair cannot now take away that choice, she said.

COURT CASE

In some ways, Aer Lingus owes its own success to Ryanair.

Ryanair's cut-rate prices and expanding choice of destinations have forced Aer Lingus to transform from a staid, high-priced Irish flag carrier into a tough no-frills competitor ready to match its rival ticket for ticket and route for route.

Aer Lingus, privatised only last year, welcomed the Commission's decision against the hostile bid.

Ryanair, expecting the EU executive to block the deal, had lashed out against the Commission on Tuesday.

This decision is politically motivated, designed to appease the narrow interests of the Irish government, which was the only party -- other than Aer Lingus itself -- to object to the merger, Ryanair Chief Exxecutive Michael O'Leary said.

He reiterated Ryanair would appeal against the decision at the EU's second highest court, the Court of First Instance. Kroes said on Wednesday she was confident the decision was legally sound.

In a confidential charge sheet earlier this year, the Commission had laid out a tough case against the merger.

The robustness of the charge sheet will be important once the decision is appealed to the court, which in past cases has scrutinised the fairness of such claims.

The charge sheet, known as a statement of objections, said that in the past six years the number of routes on which the carriers competed had jumped to 37 from eight, driving prices down by 5 to 8 percent.

Ryanair offered proposals it said could assure competition despite a merger, but they were never enough to satisfy the Commission. For example, the carrier offered to make space for a new rival to base as many as six planes at Dublin Airport.

Ryanair also offered to sell Aer Lingus' slots at London's Heathrow and Dublin for flights between the two airports.

(Additional reporting by Paul Taylor in Brussels and Paul Hoskins in Dublin)